Though HP did not address the criticism directly, it did cheekily reply that it “look[s] forward to hearing Dr. Lynch and other former Autonomy employees answer questions under penalty of perjury.” Since that time HP’s comment on the matter has been that the case is in the hands of authorities such as the U.K. Serious Fraud Office and the U.S. Securities and Exchange Commission.

This week it was revealed that the U.K.’s Financial Reporting Council (FRC) is investigating Autonomy’s books from 2009 to 2011. The FRC investigation will take place in consultation with the Institute of Chartered Accountants in England and Wales (ICAEW).

Through the website created by Lynch, former Autonomy execs boldly proclaimed that they “welcome” the FRC investigation. The statement, in full:

We note the announcement by the UK’s Financial Reporting Council (FRC) that it has begun an investigation of the financial reporting of Autonomy for the period from 1 January 2009 to 30 June 2011. As a member of the FTSE 100 the accounts of Autonomy have previously been reviewed by the FRC, including during the period in question, and no actions or changes were recommended or required.

We welcome this investigation. Autonomy received unqualified audit reports throughout its life as a public company. This includes the period in question, during which Autonomy was audited by Deloitte. We are fully confident in the financial reporting of the company and look forward to the opportunity to demonstrate this to the FRC.

Depending on what the FRC uncovers, either Lynch or HP will have some serious explaining to do. Besides embarrassment and possible criminal implications, the investigation could end up playing a large role in the lawsuits HP’s allegations have spawned.

HP acquired Electronic Data Systems (EDS) in 2008 for $13.9 billion. The IT services company has become heavily integrated into HP, but its value has not held. In August HP announced its third quarter 2012 report included an impairment charge of around $8 billion related to EDS and HP’s larger restructuring efforts.

The Autonomy write-down is similar, but mired in accusations of fraud and mismanagement. HP announced in November that it would be taking an $8.8 billion write-down due to “serious accounting improprieties, misrepresentations, and disclosure failures” at Autonomy prior to its $10.2acquisition in 2011.

Former Autonomy CEO Mike Lynch was quickly outspoken in answering HP’s accusations, blaming mismanagement at HP for Autonomy’s lost value. He even started a website to counter HP’s claims.

For its part, HP has held its ground and claims that the truth will come out when financial investigators in both the U.S. and U.K. are able to review Autonomy’s books. Meanwhile, nearly everyone involved has been sued on behalf of HP shareholders.

As for the possible sales of the EDS or Autonomy, it doesn’t appear the HP want to let them go. The WSJ report cites “people familiar with the discussions” as saying that EDS may be too tightly integrated with HP to sell. Autonomy would be easier to let go of, but HP has stated that it is committed to working with Autonomy in its current form.

In the midst of all these financial troubles, HP has just announced the opening of a new headquarters lobby and executive briefing center. The 37,700-square-foot facility, said HP CEO Meg Whitman, “…is a symbol of out turnaround and sets the tone for a continued path of progress and rejuventation.”

HP’s latest 10-K filing with the U.S. Securities and Exchange Commission makes it clear that the company will be looking to sell off assets it no longer considers vital to its future objectives. According to a Bloomberg report, HP will evaluate the potential sale of underperforming divisions, though it acknowledges that finding buyers or “alternative exit strategies” could be difficult.

In 2011, it was rumored that HP was looking into spinning off its PC division. CEO Meg Whitman eventually decided against such a move, and instead combined HP’s printer and PC divisions.

At around the same time, HP acquired a knowledge management service company called Autonomy. The purchase turned out to be a huge misstep, however. In November 2011, HP blamed much of its second $8 billion write-down on “accounting improprieties, misrepresentations, and disclosure failures” by former Autonomy executives. The 10-K filing does not provide any new details on what Autonomy is alleged to have done, though it does state that the U.S. Department of Justice is currently investigating Autonomy’s accounts.

In 2012 the market for tablets and mini tablets exploded as Apple, Amazon, Google, and other manufacturers bet big on the technology. And it’s worked. Global shipments for tablets are expected to rise to 210 million in 2013, beating estimates for PC shipments.

Welcome to the the Post-PC era. Here’s your tablet.

Will the desktop PC ever truly be gone? Give us your predictions in the comments.

HP’s flirtation with mobile technology consisted largely of its acquisition of Palm in 2010. However, the company wasn’t able to compete with Apple, and discontinued all of its webOS products near the end of 2011. HP recently released several hybrid PC/tablet devices based on Microsoft’s Windows 8 operating system, but if Microsoft’s Surface is any indication, those devices aren’t particularly in demand, at least from home consumers.

So, losing the hardware game that had sustained it for decades, HP has turned to its enterprise services for revenue. Unfortunately, value hasn’t been found there either, and HP has announced 29,000 layoffs planned by the end of fiscal year 2014.

In HP’s third quarter 2012 earnings report, the first $8 billion write-down was blamed on Electronic Data Systems (EDS), an IT services company HP bought in 2008 for $13.9 billion. It’s value didn’t hold, and HP shares continued to decline. At the end of 2012, HP stock is trading at around $14, down from highs of around $50 near the beginning of 2011

The company’s fourth quarter 2012 earnings report blamed the majority of the second $8 billion write-down on Autonomy, a British knowledge management service company it acquired in 2011 for $10.2 billion. There was a twist this time, though. HP specifically laid the blame for more than $5 billion of the write-down on former Autonomy CEO Mike Lynch and other former Autonomy executives. HP brazenly accused Autonomy execs of “serious accounting improprieties, misrepresentations, and disclosure failures” prior to the acquisition.

Almost immediately, Lynch fired back at HP, claiming that HP mismanagement was responsible for key people leaving Autonomy after the acquisition. Lynch even created a website and issued an open letter to combat the allegations. In his letter he denies any wrongdoing on Autonomy’s part, saying, “I utterly reject all allegations of impropriety.” He points out that world-class auditing firms, as well as HP’s own accounting people, had access to Autonomy’s books during the due diligence period of the acquisition.

Lynch goes on to accuse HP of operational and financial mismanagement of Autonomy, and leveled some allegations about HP department infighting that made the company appear rather childish. He implored HP to explain, in detail, how $5 billion dollars in accounting fraud could have gone unnoticed.

HP responded to Lynch’s open letter, though it did not detail the numbers in its allegations. Instead, HP insisted that the matter would be resolved by the UK Serious Fraud Office, the U.S. Securities and Exchange Commission, and the U.S. Department of Justice. It then haughtily added that it looks forward to “hearing Dr. Lynch and other former Autonomy employees answer questions under penalty of perjury.” On December 28, 2012, it was confirmed by HP that the U.S. Department of Justice is currently investigating Autonomy’s accounts.

Obviously, someone is lying. Either Lynch and other Autonomy execs are guilty of a nearly unfathomable amount of fraud and deceit, or HP ran Autonomy (and possibly EDS, for that matter) into the ground with shoddy management. Either way, HP overpaid for Autonomy, a move that shows just how desperate the company is to gain traction with its enterprise services.

Who is telling the truth, HP or Mike Lynch? Let us know your thoughts in the comments.

As HP looks to the future, it’s hard to see 2013 being a turnaround year for the company. In addition to Autonomy-related lawsuits which will carry on for years, the company’s restructuring efforts will continue to cut into its quarterly profits. While Apple and Samsung compete to dominate the new frontier of computer hardware, HP will be limping toward a coherent, fully-integrated business structure.

This doesn’t mean the death of HP, though. In its many decades of existence the company has, much like IBM, re-invented itself a few times, and it is likely to survive by doing so again. Exactly what value HP will be bringing to customers in the future isn’t clear, but come 2015 the company should be lean enough for a solid leader take it in almost any direction.

How can companies like HP succeed in the future? Let us know in the comments.

Now, Lynch has created a website, AutonomyAccounts.org, to be his and other former Autonomy management’s home base for combatting HP’s allegations. The site states that it is to provide “relevant information” pertaining to the disagreement and that the former management team of Autonomy “strongly rejects” HP’s allegations. From the website:

This site is designed to be a public point of contact for Dr Mike Lynch and other former managers at Autonomy with the wider world. It will contain information about Autonomy and any public statements made on behalf of the former management team related to these issues.

The Autonomy team are committed to providing clear and transparent information during this process, and would like to see the issue resolved as quickly as possible.

Lynch has already posted a short statement from former Autonomy management and an open letter Lynch wrote to HP. The statement again denies the accounting fraud allegations and calls them “false.” The open letter challenges HP to reveal the evidence it has against Autonomy. HP responded to Lynch’s letter, stating that it will let legal system sort the situation out, but that it looks “forward to hearing Dr. Lynch and other former Autonomy employees anseer questions under penalty of perjury.”

The Autonomy allegations came as HP announced last month it would be taking an $8.8 billion impairment charge, $5 billion of which is related to “serious accounting improprieties, misrepresentations, and disclosure failures” at Autonomy. HP bought Autonomy in 2011 for $10.2 billion. HP shareholders have filed lawsuits against just about everyone involved in the purchase of Autonomy.

According to a Reuters report, an HP shareholder has sued just about everyone involved with the acquisition of Autonomy a knowledge and enterprise search services company. HP’s board of directors, HP CFO Catherine Lesjak, HP CEO Meg Whitman, and former HP CEO Leo Apotheker are all named in the lawsuit. Four different auditing firms – Deloitte, KPMG, Barclays, and Perella Weinberg Partners – have also been sued, and a San Francisco Chronicle report states that former Autonomy CEO Mike Lynch has also been sued. Deloitte was name-dropped by Whitman during the announcement, and the firm has denied knowledge of any fraud, promising to cooperate with investigations.

The lawsuit alleges that HP executives and the auditing firms missed “red flags” about Autonomy’s accounting practices. They claim that due diligence was lacking, and that HP overpaid for Autonomy, costing the company billions. HP stated last week that an internal investigation uncovered fraudulent accounting practices at Autonomy before it bought the company for $10.2 billion in 2011. Lynch immediately began speaking out against the accusations, calling HP’s announcement an ambush and stating that the allegations are “completely and utterly wrong and we reject them completely.” Lynch went on to reveal that Autonomy had difficulty transitioning to HP’s corporate structure, and blamed infighting between HP divisions as the real cause of the value loss. He even filed an open letter to the company, challenging them to present their evidence against the company he founded.

HP, for it’s part, has stated that it is currently investigating the alleged “accounting improprieties, disclosure failures, and outright misrepresentations,” and that the issue is now with the U.K. Serious Fraud Office, the U.S. Securities and Exchange Commission, and the U.S. Department of Justice. The company did state, however, that it looks forward to hearing Lynch “answer questions under penalty of perjury.”

Today, Lynch released a lengthy letter rejecting all allegations of impropriety at Autonomy, and demanding that HP release details of their allegations “in the intrest of all stakeholders.” The letter, in its entirety:

Open Letter from Dr Mike Lynch to the Board of Directors of Hewlett-Packard

27 November 2012

To: The Board of Directors of Hewlett-Packard Company

On 20 November Hewlett-Packard (HP) issued a statement accusing unspecified members of Autonomy’s former management team of serious financial impropriety. It was shocking that HP put non-specific but highly damaging allegations into the public domain without prior notification or contact with me, as former CEO of Autonomy.

I utterly reject all allegations of impropriety.

Autonomy’s finances, during its years as a public company and including the time period in question, were handled in accordance with applicable regulations and accounting practices. Autonomy’s accounts were overseen by independent auditors Deloitte LLC, who have confirmed the application of all appropriate procedures including those dictated by the International Financial Reporting Standards used in the UK.

Having no details beyond the limited public information provided last week, and still with no further contact from you, I am writing today to ask you, the board of HP, for immediate and specific explanations for the allegations HP is making. HP should provide me with the interim report and any other documents which you say you have provided to the SEC and the SFO so that I can answer whatever is alleged, instead of the selective disclosure of non-material information via background discussions with the media.

I believe it is in the interest of all stakeholders, and the public record, for HP to respond to a number of questions:

• Many observers are stunned by HP’s claim that these allegations account for a $5 billion write down and fail to understand how HP reaches that number. Please publish the calculations used to determine the $5 billion impairment charge. Please provide a breakdown of the relative contribution for revenue, cash flow, profit and write down in relation to:
  • The alleged “mischaracterization” of hardware that HP did not realize Autonomy sold, as I understand this would have no effect on annual top or bottom lines and a minor effect on gross margin within normal fluctuations and no impact on growth, assuming a steady state over the period;
  • The alleged “inappropriate acceleration of revenue recognition with value-added resellers” and the “[creation of] revenue where no end-user customer existed at the time of sale”, given their normal treatment under IFRS; and
  • The allegations of incorrect revenue recognition of long-term arrangements of hosted deals, again given the normal treatment under IFRS.
• In order to justify a $5 billion accounting writedown, a significant amount of revenue must be involved. Please explain how such issues could possibly have gone undetected during the extensive acquisition due diligence process and HP’s financial oversight of Autonomy for a year from acquisition until October 2012 (a period during which all of the Autonomy finance reported to HP’s CFO Cathie Lesjak).
• Can HP really state that no part of the $5 billion writedown was, or should be, attributed to HP’s operational and financial mismanagement of Autonomy since the acquisition?
• How many people employed by Autonomy in September 2011 have left or resigned under the management of HP?
• HP raised issues about the inclusion of hardware in Autonomy’s IDOL Product revenue, notwithstanding this being in accordance with proper IFRS accounting practice. Please confirm that Ms Whitman and other HP senior management were aware of Autonomy’s hardware sales before 2012. Did Autonomy, as part of HP, continue to sell third-party hardware of materially similar value after acquisition?Was this accounted for by HP and was this reported in the Autonomy segment of their accounts?
• Were Ms Whitman and Ms Lesjak aware that Paul Curtis (HP’s Worldwide Director of Software Revenue Recognition), KPMG and Ernst & Young undertook in December 2011 detailed studies of Autonomy’s software revenue recognition with a view to optimising for US GAAP?
• Why did HP senior management apparently wait six months to inform its shareholders of the possibility of a material event related to Autonomy?

Hewlett Packard is an iconic technology company, which was historically admired and respected all over the world. Autonomy joined forces with HP with real hopes for the future and in the belief that together there was an opportunity to make HP great again. I have been truly saddened by the events of the past months, and am shocked and appalled by the events of the past week.

I believe it is in the best interests of all parties for this situation to be resolved as quickly as possible.

I am placing this letter in the public domain in the interests of complete transparency.

Yours faithfully,

Dr Mike Lynch

HP quickly fired back a response to the letter. In short, the company wants legal processes to run their course, and demurred to engage Lynch in a public debate. It did, however, get in one jab about looking forward to Lynch answering questions “under penalty of perjury.” HP stated that the matter is now in the hands of the appropriate authorities, including the U.K. Serious Fraud Office, the U.S. Securities and Exchange Commission, and the U.S. Department of Justice. The company also made it clear that it intends to take legal action “at the appropriate time. HP’s full statement:

HP has initiated an intense internal investigation into a series of accounting improprieties, disclosure failures and outright misrepresentations that occurred prior to HP’s acquisition of Autonomy. We believe we have uncovered extensive evidence of a willful effort on behalf of certain former Autonomy employees to inflate the underlying financial metrics of the company in order to mislead investors and potential buyers.

The matter is in the hands of the authorities, including the UK Serious Fraud Office, the US Securities and Exchange Commission’s Enforcement Division and the US Department of Justice, and we will defer to them as to how they wish to engage with Dr. Lynch. In addition, HP will take legal action against the parties involved at the appropriate time.

While Dr. Lynch is eager for a debate, we believe the legal process is the correct method in which to bring out the facts and take action on behalf of our shareholders. In that setting, we look forward to hearing Dr. Lynch and other former Autonomy employees answer questions under penalty of perjury.

The day of the announcement, Lynch spoke out against the allegations of accounting fraud, saying that he and other Autonomy executives had been “ambushed.” He stated that the allegations are “completely and utterly wrong.” An accounting auditor name-dropped by HP CEO Meg Whitman in the latest HP earnings call also came forward to deny any knowledge of accounting improprieties or misrepresentations.

Lynch hasn’t stayed quiet following his zero-day remarks, though. In an interview segment published today over at Business Insider, Lynch put the blame for Autonomy’s value loss squarely on HP’s shoulders. He stated that HP is torn between executives who want the company to focus more on software and executives who’s positions in the company require a focus on hardware.

Lynch points to infighting between HP divisions as the reason for the recent impairment charge. He claims that much of Autonomy’s “great, playful, lively young talent” left the company due to internal bureaucracy. In fact, Lynch claims, he and the entire Autonomy management team eventually “gave up.” He states that the unnamed senior Autonomy whistleblower HP claims revealed the accounting fraud couldn’t have been from the senior management team at Autonomy. Lynch states that the name of the whistleblower that circulated to him was “an HP software person who was brought in a month before I left,” and suggested this person came into Autonomy with an agenda.

It’s clear from HP’s financial position that things at the company aren’t going completely smoothly. However Lynch, who compared HP to an airplane with its engine on fire, also hasn’t fully addressed the claims of misrepresentations at Autonomy, preferring to stay on the offensive against HP. No doubt many lawsuits are currently being prepared, and the truth of both sides’ claims will be put to the test in court over the coming years, with a lot of dirty laundry to go with them.

Today, an account auditing firm that audited Autonomy’s financials before the company was purchase by HP has denied any knowledge of the accounting improprieties HP alleges.

According to a statement obtained by the New York Times, auditing firm Deloitte “categorically denies that it had any knowledge of any accounting improprieties or misrepresentations in Autonomy’s financial statements.” From the statement:

“We conducted our audit work in full compliance with regulation and professional standards. We are unable to discuss our audit work further due to client confidentiality. We will cooperate with the relevant authorities with any investigations into these allegations.”

Deloitte was mentioned by name by HP CEO Meg Whitman (pictured above) during the company’s fourth quarter 2012 earnings call as one of the accounting firms the HP board relied on while doing due diligence for the Autonomy purchase. Deloitte made it clear that, though Deloitte UK was auditor to Autonomy when the HP sale occurred, it “was not engaged by HP, or by Autonomy, to provide any due diligence in relation to the acquisition of Autonomy.”

On November 20, HP announced it would be taking an $8.8 billion impairment charge, $5 billion of which is due to what it calls “serious accounting improprieties, misrepresentations, and disclosure failures” at Autonomy prior to HP’s acquisition of the company. HP stated that after Autonomy founder Mike Lynch left the company, a “senior member” of Autonomy’s leadership stepped forward and blew the whistle on questionable accounting and business practices. Later that day, Lynch fired back at HP, calling their figures “mad” and implying that it’s no coincidence the announcement came on the heels of HP’s worst earnings results in history.

This morning HP revealed that it will take an $8.8 billion impairment charge due to what it calls “serious accounting improprieties, misrepresentations, and disclosure failures” by Autonomy in the run up to its acquisition. HP claims that a “senior member” of Autonomy’s leadership came forward after Lynch left the company, spurring a forensic review of Autonomy’s accounting practices.

Lynch told WSJ that he was not aware of HP’s allegations before they were made public this morning. “We have been ambushed,” said Lynch. He pointed out that Autonomy was audited on a quarterly basis, and that HP was meticulous during its due diligence investigation into Autonomy before the acquisition.

“The figures are just mad,” said Lynch. “You are talking about handing them an asset worth $12 billion and they are saying $9 billion of that they are taking off. That would be such an obvious massive thing with 300 people and all these firms doing due diligence, how could you possibly not spot it?

Lynch also mentions that the announcement seems “coincident with [HP] releasing the worst set of results in their 70-year company history.”

It does seem incredible that HP and other entities could have missed accounting fraud on such a huge scale, and it’s clear that Lynch intends to defend himself and his former company against HP’s allegations. HP pledged in its statement this morning that it intends to “seek redress against various parties in the appropriate civil courts to recoup what it can for its shareholders.” The lawsuits will be flying soon, bringing with them clarity on whether Autonomy’s books were clean or not.